All About Calculation of Returns on Endowment Policies

Endowment plan is a life insurance plan which provides you with a combination of both i.e.  an insurance cover, as well as savings plan. It helps you in saving regularly over a specific period of time, so that you can get a lump sum amount on policy maturity, if the policyholder survives the policy term. It's also useful for securing yourself and your family post-retirement or to meet various financial needs such as funding for children's education or marriage or buying a house.

Endowment plans provide returns to the policyholder in the form of different types of bonuses namely simple reversionary bonuses, interim bonus, cash bonus, and terminal bonus etc. The policyholder receives maturity benefits which can be used for meeting various financial requirements. 

How Do Endowment Plans Generate Returns?

A part of the premium paid by the policyholder gets allocated towards the sum assured decided at the inception of the policy and a portion of the premium is allocated towards the administrative expenditure of the insurer. The remaining portion of the premium gets invested. The funds that are invested generate certain returns every financial year. These returns may be declared by the life insurance company as a bonus. 

The bonus declared is usually a percentage of the sum assured of the policyholder. The life insurance company may declare a bonus every financial year, but the bonus cannot be guaranteed by the insurer. Once declared, this bonus amount becomes a part of the guaranteed benefits provided by the plan. The bonus payments are not payable immediately, but they accrues every year and becomes payable only at maturity of the policy or during a death claim.

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Calculation of Returns on Endowment Policies

To calculate returns on an endowment policy, an individual has to keep up with all the details related to the plan. These following steps can be followed to calculate returns on your life insurance policy:

• Read The Policy Documents 

First step under the calculation of returns on investments is to read the crucial details of the policy such as charges applicable, bonuses and premium etc. After assessing the policy documents, make a table that shows:

• Calculate Charges

Different plans offer different charges and perks, these particulars must be accurate to calculate reliable returns. Further, you have to subtract all the charges levied under the plan from the amount of premiums paid for the year. Add any interest or bonus applicable under the plan. The amount obtained will be the return made on any particular insurance policy. The individual has to continue with the calculations for the following years. 

• Add Variable Additions

The last step is to add the guaranteed additions offered by the insurance policy to reach the investment decision. These additions increase the value of your corpus and ensures you receive maximum wealth after completing the policy term of the respective endowment plan. 

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Know Why Buying An Endowment Policy Is A Good Idea

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.